Transcript of the questions and answers from the press conference

Your new forecast expects market interest rates to peak at around 4.75% in Q1. Given the standard difference between the official two-week rate and three-month market rates, this would mean that today’s rate increase has already met the need to tighten monetary policy as expected by the forecast. However, the Bank Board also agreed that the risks to the forecast are inflationary. My question is what steps can we expect in the future? Are the big hikes already truly behind us and some fine-tuning will now take place? And does it still hold true that official interest rates should peak below 5%? And when could that happen?

It is indeed as you described it and as it is also written in the statement. At the moment, if all the assumptions of the forecast materialise, there should basically no longer be any major need to tighten monetary policy further using interest rates.

However, as you also said, we have stated quite clearly that we see some inflationary risks to the forecast, albeit moderate or reasonable ones. This means there is some degree of probability that, unfortunately, the situation will require additional tightening steps. However, estimating them would be mere speculation from today’s perspective. We are living in great uncertainty due to the many factors affecting the outcome, especially in terms of inflation and its outlook.

We still don’t know the January figure and we don’t know the figures for the subsequent months of this year. One of the risks I mentioned is the degree of repricing of the various commodities, products and services that are part of the price basket. We suppose that it will be sizeable, but the certainty of our estimate is highly limited at this moment. Of course, we don’t know how the disruptions to global trade will evolve. They are still playing a significant role, especially in an economy like ours that is strongly focused on industry, in particular highly export-oriented industry. There is uncertainty with regard to the future steps of the central banks of relevance to us. We know that the Fed will tighten, but we don’t know how rapidly. We have a corridor of estimates, of course, but we can see that the range of the estimates is rather broad. We don’t know exactly what the European Central Bank will do during this year.

So, there are many uncertainties. We don’t want to send out a clear signal in this respect. We have no ceiling for raising interest rates. The level of 5% was mentioned somewhere, but that was mentioned in a certain context a few months ago. Unfortunately, we are still being surprised negatively to some extent by how strong the inflation pressures are, be they domestic or related to global factors. So, this is no taboo, of course.

As I said, however, if the forecast materialises – and we believe it, we have no reason not to believe it – of course taking into account all the uncertainties and risks, no further sizeable hikes should be necessary. However, the uncertainty is still great.

I’d like to ask about the Czech National Bank’s communications. In recent weeks we have noticed that Bank Board members are very specific when giving their outlooks for interest rates, with specific numbers being mentioned. You already mentioned one of them – 5%. Can this be interpreted as the CNB’s reaction to the situation we’re in and its effort to prepare the economy and society for the CNB’s steps as carefully as possible? Or is it a longer-term shift in the bank’s communication?

We have been presenting the interest rate path for a long time. It is one of the key indicators in our forecasts and our communications. The fact that we are trying to communicate is also a constant and standard part of our work.

So, I don’t think there has been a fundamental change recently. Maybe the intensity of communication. It may also be because there is much greater demand for this topic. This is natural, as we are experiencing something exceptional. None of us could have imagined a year and a half ago that we would see such a wave of inflation – not only in the Czech Republic, but also throughout Europe and to a large extent around the advanced world – that clearly is not being caused by just one commodity and a one-off shift in its price, and that is, say, all-embracing and pervading all layers of the economy.

So, this is indeed a change none of us estimated to this extent. I dare say that the Czech National Bank was definitely one of the first institutions to start signalling the perception that it might be something relatively long-running and very serious, that it is no summer storm that will soon pass. Unfortunately we were right. The higher frequency and greater specificity of the communications by the Bank Board members may be related to this. However, we are not using forward guidance – not that we couldn’t use it as a tool if necessary, but now we certainly are not in a phase in which we would be using it – and we are not committing to any rate levels or changes to rates. This is no time to be doing that.